Europe ends up on U.S. rate hopes

Gains by oil majors muted after Ukraine deal, downgrade

SarahTurner

LONDON (MarketWatch) -- European shares ended higher Wednesday after the Federal Reserve signaled that the U.S. rate-hike cycle was nearing an end.

The German DAX 30 ended up 1.2% at 5,523, the French CAC 40 index (1804546) added 1.3% to 4,838 and the U.K. FTSE 100 index (UKX) climbed 0.6% at 5,714. See London Markets.

The pan-European Dow Jones Stoxx 600 advanced 0.9% to 315.99, helped by gains from insurance stocks such as Prudential.

U.S. stocks rallied Tuesday after the minutes of the Federal Open Market Committee's latest meeting in December showed a majority of policymakers believe the central bank need implement only a few more rate hikes.

"The minutes ... gave markets the steer that we could be very close to the top of the U.S. interest-rate cycle and that's given stock markets a further boost," noted Philip Shaw at Investec.

"It's a good start to the year so far ... and I think primarily there's a feeling of confidence about global growth prospects for this year."

U.S. stocks extended the rally Wednesday, with solid factory data, a dip in crude prices and an upgrade for Google lending support. See Market Snapshot.

In the energy markets, front-dated crude prices recently fell 29 cents to $62.85 on the New York Mercantile Exchange. See Futures Movers.

Removing a question mark that's been hanging over the markets this week, Russia and the Ukraine agreed that Gazprom will sell its gas to 50% owned RosUkrEnergo at $230 per 1,000 cubic meters and RosUkrEnergo will then sell the gas to the Ukraine at $95 per cubic 1,000 meters, according to Dow Jones.

Meanwhile, French oil major Total
TOT, -1.66%
(012027) ended down 0.3%, while U.K.-listed BP
BP, -0.97%
(BP) dipped 0.5% after Morgan Stanley cut its ratings on the companies to underweight from equal weight. Morgan Stanley said the supermajors should underperform the industry this year.

Elsewhere, U.K. clothing retailer Next (NXT) was a standout, up 10.3% after raising its 2005 pretax profit forecast to a range of 435 million pounds to 450 million pounds.

Next's same-store sales, which fell 3.2% from Aug. 1 to Dec. 24, are expected to fall around 3% over the next six months. Still, the sales decline to Dec. 24 was better than the 5% decline some analysts had expected. See full story.

Still in the U.K., Prudential
PUK, -1.65%
(PRU) helped insurance stocks, touching a new 3 1/2-year high amid market speculation that it could be in line for a bid from Prudential Financial
PRU, +0.55%
of the U.S.

Prudential shares finished up 2.2% at 572 pence in London.

Also in the financial-services sector, Eurex, the futures exchange owned by the Deutsche Boerse (581005) and the SWX Swiss Exchange, said it's in discussions with a "number of U.S. exchanges" to have a partner take a stake in the company's struggling U.S. unit. Deutsche Boerse shares eased about 0.5%.

Irish building-materials group CRH (CRH)
CRHCY
added 1.3% after it said 2005 pretax profit should top 1.25 billion euros, which would amount to a rise of at least 14% from 2004 levels, with second-half pretax profit rising about 11%. Growth in the United States helped fuel the profit rise. See full story.

French engineering conglomerate Alstom (012019) jumped after it agreed to exit its shipbuilding business by transferring a controlling stake to Norway's Aker Yards.

"We view this move as excellent for Alstom, as we value the Marine division at a negative 500 million euros," said analysts at Bear Stearns.

Also in France, car maker Renault (013190) eased 1.2% after saying it expects European sales volumes this year to grow slightly in competitive stable markets, while it will also continue to pursue growth outside Europe. In 2005, global sales rose 1.7% to 2.53 million vehicles.

Renault shares had rallied on Monday and Tuesday.

Dresdner Kleinwort Wasserstein analysts said that they remain cautious on the company as the second half of 2005 was characterized by a "massive acceleration" of a decline in unit sales in Western Europe, which it said still represents the company's most important and most profitable market.

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